# has Anyone Invented Riskless Investing? **URL:** \ **Category:** Factual Questions\ **Created:** [August 17, 2015, 1:37pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069 "2015-08-17T13:37:20Z")\ **Posts on this page:** 16\ **Page:** 4
**Author:** ![dropzone](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dropzone/32/7515_2.png) [@dropzone](https://boards.straightdope.com/u/dropzone)\ **Post date:** [August 18, 2015, 1:16am UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/61 "2015-08-18T01:16:49Z")
I’ve always been a fan of insider trading, though I’ve never had insider stock knowledge nor the money to invest. Everything else is _look of distaste_ _gambling,_ to one extent or another, and I only “gamble” on sure things. If the fix ain’t in, neither am I. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [August 18, 2015, 6:39am UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/62 "2015-08-18T06:39:15Z")
> [@dropzone](#): > > I’ve always been a fan of insider trading, though I’ve never had insider stock knowledge nor the money to invest. Everything else is _look of distaste_ _gambling,_ to one extent or another, and I only “gamble” on sure things. If the fix ain’t in, neither am I. Which leads me to wonder how you measure the risk of a perp walk. ---
**Author:** ![LSLGuy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lslguy/32/5813_2.png) [@LSLGuy](https://boards.straightdope.com/u/LSLGuy)\ **Post date:** [August 18, 2015, 12:22pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/63 "2015-08-18T12:22:18Z")
As a W.C. Fields character once said: Outraged woman: Poker? You play poker? But that’s a game of chance! W.C. Fields: Not the way I play it. ---
**Author:** ![ethelbert](https://avatars.discourse-cdn.com/v4/letter/e/958977/32.png) [@ethelbert](https://boards.straightdope.com/u/ethelbert)\ **Post date:** [August 18, 2015, 2:30pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/64 "2015-08-18T14:30:31Z")
A great book to read is “Against the Gods: The Remarkable Story of Risk” by Peter L. Bernstein. It will answer your question. ---
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [August 18, 2015, 2:34pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/65 "2015-08-18T14:34:28Z")
> [@LSLGuy](#): > > As a W.C. Fields character once said: > > Outraged woman: Poker? You play poker? But that’s a game of chance! > W.C. Fields: Not the way I play it. The scene is from _My Little Chickadee_, and the speaker is a man, not outraged. > [@](#): > > Flower Belle’s country cousin, Zeth, arrives. “Have you any of the elusive spondulicks on you?” Twillie asks Zeth. > > “You mean money?” asks the confused bumpkin. When Zeth indicates he does, Twillie hastily instructs the Indian to go milk his elk, and ushers Zeth into the empty chair. > > The scene ends with what is probably the most-quoted poker-related exchange of any of Fields’ films, although often one sees it erroneously suggested that Fields’ character is speaking to Flower Belle, not her cousin. As Zeth spreads his money on the table, he excitedly asks, “Is this a game of chance?” > > “Not the way I play it, no,” comes the reply. ---
**Author:** ![bump](https://avatars.discourse-cdn.com/v4/letter/b/7c8e57/32.png) [@bump](https://boards.straightdope.com/u/bump)\ **Post date:** [August 18, 2015, 3:27pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/66 "2015-08-18T15:27:14Z")
> [@Chronos](#): > > There is one very important way in which the rich can invest more profitably than the poor. High-risk investments generally have higher expected value than lower-risk ones, because people attach a price to the risk itself. One way of mitigating this risk is to make a very large number of investments, in areas that would be expected to be relatively uncorrelated with each other (a diverse portfolio). Make enough investments, in enough different fields, and you’re almost guaranteed to have a few of your long shots coming in at any given time, and more than paying for the ones that don’t. > > But this only works if you can make enough investments. Make too few, and there’s a too-high-to-ignore that all of your long shots will fail, and wipe you out. And how many investments you can make is limited by how much money you have to invest. Diversification is nothing special or secret, and it has benefits beyond merely limiting one’s exposure if a particular security or set of securities goes south on you, namely that benefit that it’s likely that while some are going south, others are perking up. That’s sort of what I was trying to get at in my earlier reply to **Flyer**. If you could perfectly diversify (i.e. have equal shares in EVERY stock, then your rate of return would mimic the market. But nobody has that, so it’s entirely possible that the market may return 7% over some time period, but that your particular tiny little chunk of it may only return 5% or may even return 9%. ---
**Author:** ![watchwolf49](https://avatars.discourse-cdn.com/v4/letter/w/e9c0ed/32.png) [@watchwolf49](https://boards.straightdope.com/u/watchwolf49)\ **Post date:** [August 18, 2015, 3:36pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/67 "2015-08-18T15:36:56Z")
> [@Really\_Not\_All\_That\_Bright](#): > > Ironically, the one get-rich-quick scheme that invariably works seems to be selling get-rich-quick schemes. That’s where investing is _exactly_ like gambling. ---
**Author:** ![amarone](https://avatars.discourse-cdn.com/v4/letter/a/e0b2c6/32.png) [@amarone](https://boards.straightdope.com/u/amarone)\ **Post date:** [August 18, 2015, 6:29pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/68 "2015-08-18T18:29:13Z")
> [@Scylla](#): > > Another way to manipulate the CPI is through substitution. What this means is that if you buy a Twinkie and look at the package it may say something like “contains one or more of the following: Dextrose, corn syrup, maltodextrose, cane sugar, etc”. These are all just sweeteners. Hostess buys whichever one is cheapest and puts that in the Twinkie. If they just used corn syrup than 5 years ago when there was a corn shortage they would have had to raise the price twinkles, but they could switch to a molasses based sweetener and keep the price stable. That way, acute effects don’t alter the pricing, and Twinkie eaters stay happy. > > In managing the CPI it is assumed that people can do the same thing. Hypothetically, a TBone steak might be part of the CPI. Let’s say there is inflation and the price of that steak doubles because of it. If you are charge of the CPI and wish to understate inflation you could say that this is just a temporary market condition creating a price spike, not inflation. You could substitute a pound of ground chuck for the Tbone. If the ground chuck costs what the Tbone used to cost then you can say “see, ground chuck is the same as steak and ground chuck is still cheap so there is no inflation.” Then you just substitute ground chuck for steak in your CPI calculation. The mechanism by which this happens is also necessarily subjective and subject to politics, manipulation and what have you. > > These are just two examples of ways in which the CPI can be manipulated to understate inflation. There are several others. Financial analysts, traders, economists and others watch closely to see if they think this is happening and if the CPI is being manipulated. The general consensus in this community (of which I am a part) is that this is happening, and real inflation is significantly higher than is reported by either CPI or Core CPI. Neither CPI nor Core CPI use the substitutions you mention. Substitutions are done in calculating Chained CPI. This has been proposed for use in determining benefits raises (e.g. Obama’s 2014 budget), but it has not happened. Chained CPI is not generally (ever?) reported when you hear about the latest CPI figures. ---
**Author:** ![Chronos](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/chronos/32/134_2.png) [@Chronos](https://boards.straightdope.com/u/Chronos)\ **Post date:** [August 18, 2015, 7:53pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/69 "2015-08-18T19:53:41Z")
I never said that diversification was any big secret. I was just saying that the rich can do it better. ---
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [August 19, 2015, 2:33pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/70 "2015-08-19T14:33:04Z")
How about these schemes where you go long on a stock, and short it was well-so that theoretically), you generate a positive return when it rises and drops? The trick is deciding at what point to buy and sell-but a computer program could do this. Another question; do high-frequency traders make consistent gains? If you buy and sell every hour, can you always make money? ---
**Author:** ![leahcim](https://avatars.discourse-cdn.com/v4/letter/l/b4bc9f/32.png) [@leahcim](https://boards.straightdope.com/u/leahcim)\ **Post date:** [August 19, 2015, 2:48pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/71 "2015-08-19T14:48:50Z")
> [@ralph124c](#): > > How about these schemes where you go long on a stock, and short it was well-so that theoretically), you generate a positive return when it rises and drops? If you go simultaneously long and short a stock, that’s the same as not doing anything at all (so riskless profit of zero). There is a strategy (called the long straddle) where you buy both a call and put option on a stock with the same strike, and that makes money if the stock goes significantly up or down. Is that what you are thinking of? Long straddles can fail to turn a profit if the stock stays about the same price, so there is still some risk involved. There is also a “short straddle” that has the opposite profile – you get profit if the stock doesn’t move much, and losses if the stock moves a lot in either direction. > [@](#): > > Another question; do high-frequency traders make consistent gains? If you buy and sell every hour, can you always make money? High frequency traders can make consistent gains by seeking out legitimate arbitrage opportunities. It is very unlikely that you as an individual trader will be able to take advantage of the same opportunities since the high frequency traders since they only exist for fractions of a second. ---
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [August 19, 2015, 3:00pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/72 "2015-08-19T15:00:48Z")
> [@leahcim](#): > > If you go simultaneously long and short a stock, that’s the same as not doing anything at all (so riskless profit of zero). There is a strategy (called the long straddle) where you buy both a call and put option on a stock with the same strike, and that makes money if the stock goes significantly up or down. Is that what you are thinking of? > > Long straddles can fail to turn a profit if the stock stays about the same price, so there is still some risk involved. There is also a “short straddle” that has the opposite profile – you get profit if the stock doesn’t move much, and losses if the stock moves a lot in either direction. > > High frequency traders can make consistent gains by seeking out legitimate arbitrage opportunities. It is very unlikely that you as an individual trader will be able to take advantage of the same opportunities since the high frequency traders since they only exist for fractions of a second. Suppose you buy a stock that shows a +/- 2% variation per day-you buy when it is down, then wait for a 2% rise (you sell). Now, you need a lot of shares to make money-at what point does unloading a 100,000 share block affect the sell price you can get?Is it possible to make a consistent 1%/day, or 365%/year? ---
**Author:** ![Chronos](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/chronos/32/134_2.png) [@Chronos](https://boards.straightdope.com/u/Chronos)\ **Post date:** [August 19, 2015, 3:34pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/73 "2015-08-19T15:34:49Z")
If it consistently continues to show a ±2% variation, then yes, you could do that. Except that you have no way of knowing that it will, and the more people assume that it will, the less likely that it’ll actually do so. ---
**Author:** ![leahcim](https://avatars.discourse-cdn.com/v4/letter/l/b4bc9f/32.png) [@leahcim](https://boards.straightdope.com/u/leahcim)\ **Post date:** [August 19, 2015, 4:40pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/74 "2015-08-19T16:40:22Z")
> [@ralph124c](#): > > Suppose you buy a stock that shows a +/- 2% variation per day-you buy when it is down, then wait for a 2% rise (you sell). Now, you need a lot of shares to make money-at what point does unloading a 100,000 share block affect the sell price you can get?Is it possible to make a consistent 1%/day, or 365%/year? Basically what Chronos said. Even if the stock obeys this pattern for a while, you are still exposed to events like, “XYZ corp’s only manufacturing plant hit by meteor” which will definitely break your stock out of this cycle. It is important to remember that stock prices represent the fortunes of real companies and are therefore prone to whatever misfortunes can befall real companies. But even if that stock obeyed that pattern consistently, and the underlying organization was magically immune to any kind of real world risk, your strategy depends on there being people willing to buy stock from you when it is up (presumably because they expect it to go up more) and sell it to you when it is down (presumably because they expect it to go down more). If the stock is known with certainty to always lie in that +/- 2% band, eventually these guys are going to smarten up and stop selling to you when it’s down and buying from you when it’s up. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [August 19, 2015, 5:17pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/75 "2015-08-19T17:17:07Z")
Actually I believe there are simple arbitrage situations that are more-or-less sure things. One I stumbled upon involved two closed-end funds, ECF and BCV. These funds are managed by the same company and have very similar portfolios, but their prices fluctuate. Right now I see that one trades at a 15.2% discount, the other at 16.2%. If you bought the one right now while selling the other you’d gain 1%. (I studied this 20 years ago, when the difference in discounts was often larger. But treat this as an _example_ of a concept, and _not_ as a specific recommendation.) What’s the catch? With daily volume in the low thousands you won’t be able to trade much without affecting the price, so the total profit available from this opportunity, after commissions, may be just a few $100 per month. The reason such opportunities exist may be that smart traders wouldn’t waste their time for such miniscule profits. But a small investor can pick up a few crumbs this way. (I never did the full arbitrage per se, but since discounted funds are a convenient place to park money, I held both, making any buy/sell decisions based on the discounts.) ---
**Author:** ![Chronos](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/chronos/32/134_2.png) [@Chronos](https://boards.straightdope.com/u/Chronos)\ **Post date:** [August 19, 2015, 5:29pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/76 "2015-08-19T17:29:53Z")
Or to put it another way, maybe those guys who buy when it’s up 2% because they think it’ll rise further are right. Or maybe the guys who sell when it’s down 2% because they think it’ll drop further are right. All of you have access to the same information, and you’re all coming to different conclusions. Why do you think you’re any smarter than they are? [Previous page](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069.md?page=3)